With earnings season fully upon us, investors should be paying close attention to their favorite companies. And when it comes to the solar industry, three of the top names to know -- and follow -- are SolarEdge (NASDAQ: SEDG), TerraForm Power (NASDAQ: TERP), and SunPower (NASDAQ: SPWR), all of which will report their most recent quarterly results within the next couple of weeks.
Considering the turmoil the global solar industry has undergone over the past couple of years, there's a lot investors should know about the industry right now, and these three companies all play critical roles in different segments of the industry. That's just one reason why it's worth watching them right now. Here's more about these three companies and why they deserve your attention this go-around.
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An overlooked solar leader that's worth paying attention to
Jason Hall (SolarEdge): At recent prices, shares of SolarEdge are down about 35% from their peak over the past year. Frankly, it continues to surprise me that Mr. Market remains so down on the company. After all, it grew profits by 45% last year, plays a key role as a major supplier for some of the biggest solar panel makers in the world, and is positioned to continue growing both sales and profits as solar panel demand remains relatively strong.
And that could prove to be just the tip of the iceberg. The company has recently made a number of moves that could really pay off over the long term, including a major push into energy storage systems for residential and commercial solar and acquiring a company that makes electric-vehicle powertrain and recharging systems.
On the one hand, spending capital to diversify away from a heavy reliance on solar panel makers comes with some risk. If those efforts don't pan out, it's wasted capital that could have been deployed to strengthen the core business. But from the bigger picture, I think the risk is well worth the potential reward. The demand for solar panels can swing wildly up or down from year to year (mainly due to shifts in demand for utility-scale systems) and having operations in other segments with different demand cycles should result in a stronger overall business. Moreover, energy storage and electric vehicles have simply massive growth prospects all their own, above and beyond the demand for solar panels.
With SolarEdge set to report earnings on May 6, we will get another look at how these key initiatives are working. At current prices, SolarEdge is already a buy, but whether you're ready to pull the trigger or not, its upcoming earnings release will be worth a read.
Waiting for more data
Matt DiLallo (TerraForm Power): Shares of wind and solar power generating company TerraForm Power have been scorching-hot this year. Through mid-April, the stock is up about 20% on the year. That price appreciation has pushed down its dividend yield from 7% in early January to about 5.6% recently (and that's after a 6% increase). Because of that, shares of my No. 1 renewable power company for 2019 aren't quite as attractive as they were to start the year. That's why I'm moving it from the top of my renewable buy list to my watchlist.
I want to see a few things before I consider buying more shares. For starters, the company has undertaken several initiatives aimed at reducing costs and boosting revenue, which should start showing up on the bottom line in the coming quarters. In addition, it's been working on several expansion-related initiatives that should help grow cash flow in the coming years. I want to see tangible results in both areas, which would increase the clarity on future growth.
TerraForm Power will report its first-quarter results in May, which will provide the next data point. If the company unveils solid financial results and secures a few growth-focused investments, that would make me more comfortable with paying a higher price for shares.
The everything-solar company
Travis Hoium (SunPower): A lot of solar companies are focused on one segment of the market or a single product. SunPower is different. Its base is high-efficiency solar panels but it uses those panels to build products for residential, commercial, and utility-scale solar project.
In the residential and commercial segment the company full solar solutions, including racking, inverters, and monitoring. It even offers financing solutions, which are then sold to investors. What SunPower's results will tell us over the next month is how healthy both residential and commercial segments are. The company has been gaining market share, so growth would be good for small-scale solar overall. SunPower is not only a bellwether for the industry overall, but it'll tell us whether high-end, high-efficiency solar panels are being valued by customers right now.
On the utility side of the business, SunPower has a unique view. After buying SolarWorld Americas last year, the company is the second-largest solar manufacturer in the U.S. and is producing a P-Series panel that's less efficient than its traditional panels but geared toward utility-scale markets. It also has P-Series production in China, which will supply markets outside of the U.S. SunPower isn't the biggest player in utility-scale solar panels, but it'll give investors an idea of where the market is heading.
There are two ways to look at SunPower's upcoming results that will not only impact SunPower but solar stocks overall. One factor to watch is volume and if SunPower can run at full capacity it will bode well for overall solar demand. The more important metric may be margins, which the solar industry has struggled with. If margins begin to rise, it may mean demand is starting to exceed supply, especially on the high end of the market, which would help SunPower and all solar stocks in 2019.
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Jason Hall owns shares of SolarEdge Technologies, SunPower, and TerraForm Power. Matthew DiLallo owns shares of TerraForm Power. Travis Hoium owns shares of SunPower. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.